Orion: Stock Is Up 50% this Year and Yields 4%

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Friday, September 23, 2016 2:42 pm CDT

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With his best performer up 50% this year, analyst Kevin Hocevar, who covers specialty chemicals for Northcoast Research, had little choice but to update his price target for Orion Engineered Carbons (OEC).
He’s keeping his Buy rating and lifted his price target to $22 from $20 in a new report Friday.

Orion, which makes carbon black, a material used to strengthen and blacken ink, tires, and a broad range of plastic products, was trading close to $19 a share Friday afternoon.

Chief executive Jack Clem visited Barron’s earlier this week and explained that the company’s strategic plan is working: It is selling more higher margin specialty versions of its material, it has improved operating efficiency and it is maintaining market share for its lower-margin rubber business.

The firm recently guided its 2016 EBITDA forecast to the higher end of the range it gave at the end of the last quarter ($215 – $225 million, up from $205-$225 million).

Here’s how Hocevar justifies the higher price for Orion on Friday:

OEC currently carries a commodity multiple (the lowest of our coverage list) but we continue to believe OEC has potential to see its multiple reset higher given 1) almost 65% of EBITDA comes from its Specialty segment (vs 50% at the time of the IPO) which carries very specialty margins (2016E 36.5% EBITDA margins) and is growing volumes at strong rates, 2) net debt should approach 2.0x in 2017 (vs 2.7x today and >3x at IPO) which removes OEC from being labeled a leveraged company, 3) liquidity event if/when private equity sells out which will help with OEC’s currently low liquidity and could result in a more active share repurchase program, and 4) other kickers that could be considered if OEC domiciles in the US, reports in USD, or is acquired.

Headquartered in Luxembourg, Orion was carved out of Germany’s Evonik Industriesin 2011 and started trading on the New York Stock Exchange in 2014. A little known company, it has a market cap over $1 billion, but only trades around 100,000 shares a day.

- By Amey Stone

Orion Engineered Carbons (OEC)
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Orion Engineered Carbons S.A.
6, Route de Trèves
L-2633 Senningerberg (Municipality of Niederanven)
Grand Duchy of Luxembourg
Phone: +352 270 48 06 0

Orion Engineered Carbons LLC
4501 Magnolia Cove Drive Suite 106
Kingwood, TX 77345
Diana Downey
Vice President of Investor Relations
Phone +1 832-589-2285

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